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What will auto-enrolment really mean for your company?


Gavin Jones,


Certified Financial Planner


The beginning of October was the start of auto-enrolment, the biggest change to retirement savings in this country since Lloyd George introduced the Basic State Pension in 1909.


You may have read about this in the media with commentary torn between the need for retirement savings in the future and the damaging effect of such a large burden placed on employers in the worst economic climate many of us have experienced.


We have certainly included several articles in this publication in the last few years talking about the changes, but as we approach the deadline for some of our clients what are the things you really need to know?


Most companies are unprepared


Over the next 6 years, 1.3 million employers will become subject to auto-enrolment – with the obligation to set up pensions for their staff and make contributions to a pension scheme for their employees. Of these, 1.2 million have fewer than 250 staff and three-quarters of those are with 4 or fewer employees.


Most of these companies are unprepared, unclear about what to do and unaware of the new auto-enrolment duties placed upon them, according to research by the Association of Consulting Actuaries (ACA).


A lot of our clients haven’t really thought about the changes with smaller companies not needing to comply until 2018 at the latest. Others will now not have that long until the deadline looms and there will be financial penalties for those that have not implemented the necessary changes in time.


There is no doubt for many this burden is unwelcome, but the longer you leave yourself to implement the changes in your scheme hopefully the less impact it will have on your business as a whole.


Which pension scheme?


It is thought that a million employers do not have a pension scheme at all but even if you do it may not be suitable at all and need changing, or at least need a few tweaks to comply.


There are many with no scheme at all and there are a number of choices to make. It will be possible to set up a company specific scheme but there are also some larger schemes set up, and you may have heard of the National Employer Savings Trust (NEST). There are pros and cons for each and these need to be considered in your individual circumstances and requirements.


Where is the money coming from?


If your staff choose to join a scheme it will be mandatory to make contributions on their behalf. This will start as 1% of their total earnings, but will rise to 3% after a couple of years.


The ACA state that only 28% have budgeted to date for the cost of auto-enrolling their employees into a workplace pension scheme. Those that have budgeted expect employee opt-out rates from schemes ranging in the main between 11-35%, with the highest opt-out rates in the smallest firms.


We know that in companies where there is an existing scheme the number of staff that don’t join is high, even when there is a generous employer contribution. So we would expect some not to join but there is already advertising highlighting the changes and the importance of saving so you should at least consider the costs if all of your staff choose to join.


Will my payroll software cope?


We don’t know. It is perhaps an important lesson that we have met with many providers of payroll software, and pension scheme providers who know what they want to offer, but don’t yet have systems that they can demonstrate.


We have to have faith that they will provide working systems on time but as we have said before there will be financial penalties for not enrolling staff on time at the outset or when new staff join.


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